Godrej Agrovet To Adani Wilmar: Customs Duty Hike To Benefit These Edible Oil Firms

In a significant move, the Indian government hiked the basic customs duty on refined palm oil, soybean oil, and sunflower oil from 12.5% to 32.5%. This decision, which came into effect Sept. 14, is expected to have wide-ranging effects across various sectors, especially the edible oil and fast-moving consumer goods companies.

India is the largest importer of palm oil globally, and sources it from countries like Malaysia, Indonesia, and Singapore. Between April and June 2024, India recorded total imports worth $173 billion, while exports stood at $110 billion, resulting in net imports of $63 billion. Among the import categories, vegetable oil emerged as the top contributor, with palm oil imports accounting for 1.2% of the country's total imports during this period.

This highlights India's reliance on edible oils from international markets, a dependency that may be affected by the recent customs duty hike, potentially reshaping trade dynamics and impacting sectors reliant on these imports.

Beneficiaries: Domestic Edible Oil Producers

The hike in customs duty is set to benefit domestic edible oil producers, such as Godrej Agrovet Ltd., Adani Wilmar Ltd., and Patanjali Foods, who stand to gain from reduced competition from imported oils. These companies may also witness improved margins, as the cost of imported edible oils increases, making locally sourced alternatives more attractive to consumers and businesses alike.

Impact On FMCG Companies

The duty hike could, however, spell trouble for FMCG companies, many of which use palm oil and other edible oils as raw materials for products such as chocolates, biscuits, cakes, cosmetics, soaps, shampoos, washing powders, and other cleaning products. Palm oil, in particular, can account for up to 20% of the weight of instant noodle packs.

Companies heavily reliant on imported palm oil will feel the pinch, with Hindustan Unilever Ltd. expected to bear the brunt. HUL imports palm oil from its wholly-owned subsidiary, Unilever Oleochemical Indonesia, making it one of the largest end-users of palm oil derivatives in India.

Other FMCG names that could potentially face rising input costs include Dabur India Ltd., Emami Ltd., Jyothy Labs Ltd., and Godrej Consumer Ltd. These companies may either absorb the higher costs or pass them on to consumers, potentially impacting their product pricing and market competitiveness.

On the other hand, companies like Nestle India Ltd. and Colgate-Palmolive Co. are expected to face lesser impact due to their local sourcing strategies. Nestle sources 90% of its edible oil requirements locally, while Colgate secures palm oil supplies domestically, insulating them from the full impact of rising import costs.

As the ripple effects of this customs duty hike unfold, edible oil producers stand to benefit, while FMCG companies may grapple with increased input costs, particularly those that rely on imported palm oil. The full impact will likely depend on how companies adjust their sourcing strategies and pricing models in the months to come.

Disclaimer: NDTV Profit is a subsidiary of AMG Media Networks Limited, an Adani Group Company.